Market players struggle to access Mifid trade-report data

Approved publication arrangements break the spirit of new transparency rules, says lawmaker

Transparency issue: sources complain the data published by two APAs is potentially unusable

Firms providing trade-reporting services under new European Union financial market rules are in danger of breaching the spirit of the law, and in some cases possibly the letter, according to lawyers and a key lawmaker.

The controversy concerns approved publication arrangements (APAs), which investment firms use to fulfil new pre- and post-trade transparency requirements under the second Markets in Financial Instruments Directive (Mifid II) and its accompanying regulation (Mifir). Pre-trade transparency means publishing offered executable quotes, while the price and quantity of certain trades must be published after execution.

The APAs must make the data free and available to the public 15 minutes after execution of the trade, but they can charge users for real-time access to the data.

The benefit for traders of having pre- and post-trade data – even with a delay – is that it will help them compare prices available in the market. However, sources complain to Risk.net that the data published by two APAs in particular – Tradeweb and Bloomberg – is potentially unusable.

“The APAs seem to be acting, if not in violation, [then] clearly frustrating the concept of publishing data free of charge and also in a machine-readable format. It is an issue with both APAs and trading venues. The entire mission of Mifid II is to improve transparency, particularly in the non-equity markets and this is not helping,” says a regulatory expert at a large investment firm.

Clearly, this behaviour of certain APAs is an attempt to sidestep the Mifid II transparency regime

Markus Ferber

While the APAs might not be violating the letter of the law, lawyers and the member of the European Parliament responsible for drafting the rules say they are breaking the “spirit” of the law, which aims to increase transparency in non-equity markets.

“I have heard complaints from market participants that post-trade data is either provided in unusable file formats or only during an unreasonably short time span. While this might technically be in compliance with the letter of Mifid II, it is certainly not in line with the spirit of the law, which was to democratise access to such information. Clearly, this behaviour of certain APAs is an attempt to sidestep the Mifid II transparency regime,” says Markus Ferber, the parliamentary rapporteur responsible for negotiating Mifid II.

In response to those complaints, Ferber sent a letter to Steven Maijoor, chairman of the European Securities and Markets Authority, on February 15, asking whether the pan-European markets regulator has observed the same practice and if it will do anything to resolve it.

A spokesperson for Esma says it will be looking into the implementation of Mifid II, but it was too early to pre-empt the next steps or outcomes.

No copying

One method of presenting post-trade data that has frustrated two sources is publication in a format that cannot be copied – a technique used by the Tradeweb APA.

The regulatory expert at the large investment firm says the only way they can copy the information is by taking screenshots of it on the website and manually copying the data afterwards, which makes it difficult to consolidate. Risk.net used Tradeweb’s APA site on February 21, and also found the only way to copy information was by taking screenshots.

Two lawyers are unconvinced this meets certain requirements set out in Mifid II.

“The APA that doesn’t allow you to copy and paste strikes me as pretty close to violating the rule by letter, as well as by spirit,” says a London-based partner at a law firm.

Photo: AG Gymnasium Melle

Markus Ferber

A requirement placed on APAs in Article 14 of a delegated regulation finalised by the European Commission on June 2, 2016, is for them to ensure their published data is machine readable. The delegated regulation lists a series of provisions outlining machine readability, one of which says it should be accessed, read, used and copied by computer software free of charge.

The two lawyers do not believe the format is machine readable if a computer cannot actually select and copy the data, as it suggests a computer is unable to identify the information.

A regulatory expert at a second law firm says: “I am not convinced that meets the requirements for the information to be machine readable. There is a legitimate argument from either side, but that is clearly not what was intended.”

The partner at the first law firm also believes this practice is in violation of another requirement in the Level 1 text of Mifid II, which says APAs and trading venues must ensure their pre- and post-trade data can be consolidated with similar data from other sources.

The purpose of this provision is to enable the creation of consolidated tape providers in equity and non-equity instruments. At the moment, no consolidated tape providers exist, but the law firm partner does not believe this voids the obligation on the APA to ensure the data can be consolidated.

“The consolidated tape providers don’t seem to exist right now, but the fact is if these APAs are subject to an obligation that they need to be publishing things in a way that can be used by third parties, that is not really being met if you can’t extract the information being made public,” says the partner at the first law firm.

Tradeweb declined to comment for this article.

Self-destruct

A second APA that the regulatory expert at an investment firm found difficult to use is operated by Bloomberg.

The Bloomberg APA publishes single-slice files in an excel format throughout the day. Each file contains a list of trades executed between each periodic publication. However, each file is deleted within two minutes after publication and the information does not reappear.

Risk.net downloaded files from Bloomberg’s APA on February 21, between 10:10am and 10:15am GMT. During that time, four files were uploaded to the website, but each one was deleted once the succeeding file uploaded. Each file contains between one to three trades and does not contain any information on the trades in the previous files.

The regulatory expert at the investment firm says unless they had someone on the site downloading every file, they would not have a complete view of activity. But a second source at a data vendor says they use a code that monitors the website and downloads each file as it is uploaded.

Both lawyers speaking to Risk.net believe this is within the letter of the law, because the legislation places no time limit for the data to be available. But the partner at the first law firm says the original intent of the regulation – of increasing transparency in the marketplace – is not being fulfilled.

“APAs are subject to an obligation to make the data available within a certain timeframe post-execution, but the rules don’t then go on to say you need to maintain the visibility of the data for a certain amount of time thereafter. So, while it may not be in violation of the expressed letter of the law, the regulatory purpose is not being served here if you have 30 seconds to capture the information before it is gone,” says a London-based partner at the first law firm.

A spokesperson at Bloomberg states: “Bloomberg APA data is freely available in machine-readable format 15 minutes after a trade is published on a public webpage, which isn’t gated. We consider this approach compliant with law, and the objective of ensuring the public can use computer software to directly and automatically read transparency data.”

How deep are your pockets?

Sources believe the reason why the APAs have made the data difficult to use is to incentivise demand for their own premium services.

“By making what is publicly available as useless as possible, it compels you – if you actually want the data – to subscribe to some data package that is maybe available now or at least [which] these entities are thinking is a longer-term opportunity,” says the regulatory expert at the large investment firm.

Tradeweb APA runs a real-time service that charges for the data, while Bloomberg Professional Services has a real-time data feed called the Bloomberg Market Data Feed (B-Pipe). However, two sources speaking to Risk.net say the fees tend to be excessive.

An electronic trading expert says they have been quoted fees ranging from $1,000 to $2,000 per month for each user. Considering there are more than five APAs, each publishing different trades, and investment firms want multiple traders to have access to the data, the overall cost for an individual institution can soon mount.

The electronic trading expert says it is currently difficult to “justify” the price tag due to numerous problems with the underlying data.

Some firms have sought legal counsel on the fees charged by APAs, as one lawyer says some clients are complaining the fees are not made on reasonable commercial terms.

Customers will always complain they are going to be gouged by their service providers. I don’t think there is a way to solve that by putting more words in the legislation

Partner at the first law firm

“Firms are complaining that [the fees charged by APAs] are not on a reasonable commercial basis. Some of the APAs are charging hundreds of thousands,” says the regulatory expert at the second law firm.

APAs and trading venues are allowed to charge for their real-time data as long as those charges are made on a reasonable commercial basis.

The European Commission outlined in a delegated regulation, finalised in May 2016, the meaning of “reasonable” commercial terms as the cost of producing and disseminating data plus a “reasonable margin”. Parliamentary rapporteur Ferber argues this is still open to interpretation.

“When the commission was drafting the delegated acts under Mifid II, I warned them it will not do the trick to define ‘reasonable commercial basis’ as ‘costs plus a reasonable margin’ as this leaves the fundamental question of what ‘reasonable’ means unanswered. Once again, it will be supervisory authorities that will have to come up with some guidance, but this is an issue that could have been easily avoided,” says Ferber.

The partner at the first law firm says this argument over commercial terms is typical in cases of vital services being provided to clients.

“Customers will always complain they are going to be gouged by their service providers. I don’t think there is a way to solve that by putting more words in the legislation,” says the partner.

Additional reporting by Lukas Becker